Country Focus: Latvia

The commercial industrial gas market in Latvia reached $43 million in 2014. This is up from $15 million in 2004, indicating an average annual growth rate of 11% p.a. for the decade. Growth has been relatively steady and the Latvian market represents the largest in the Baltic region.

The Economy

In 2014, Latvian GDP reached €21.5 billion, with average growth coming in at a comfortable 2.65%. This did represent a slowdown from the previous 3 years, where the economy was experiencing higher growth of between 4.1% and 5.3% p.a. during the post-recession period. Like many European countries, the global recession heavily impacted Latvia’s economy and lasted for three years. In 2009, GDP dropped by -18% p.a. With the help of a $10 billion bailout from the International Monetary Fund and the European Union recovery did ensue. Although, GDP is yet to reach the pre-recessionary levels of 2007.

Inflation has generally remained low, except for the years during the recession – with it reached an average annual peak of over 15%.

During the past decade, industrial production – as measured by the industrial production index – has grown at an average annual rate of 6%. This growth has been promoted by new metallurgical facilities commencing production in the country.

The Gases Business

The structure of supply in the country unsurprisingly centres on packaged product. Sales of packaged product generated just over 70% of market value in 2014. Bulk supply is the second most prevalent mode of delivery in the country accounting for just under 20% of sales. Liquid product is transported to clients from AGA’s ASU in Valmiera and Elme Messer Metalurgs’ ASU in Liepaja. Onsite operations for metallurgical and glass clients accounted for a further 6% of sales.

Demand from manufacturing end users account for the majority share of the market – around 45%. Metallurgical end users account for just over 15%. The remainder of the end user market is somewhat fragmented, although noteworthy revenues are generated through the sale of gases to the healthcare and food and beverage industries.

The Future

There has been recent discussion on the topic of adding LNG infrastructure in Latvia. These talks all centred on the issue of European energy security and is legislated under the European Union’s Third Energy Package. Latvia will need to implement the requirements laid out by this piece of legislation before it can take full advantage of the benefits LNG. If these conditions are met and LNG infrastructure is built, it could prove to be a major driver for growth within the country’s industrial gases business.

Onsite revenues haven’t experienced the growth that was expected over the past few years – due to the temporary Liepaja Metalurgs closure. The factory is expected to restart production in early 2015, and onsite revenues, and Elme Messer’s revenues, should witness a notable increase.

Within the 2015-2020 timeframe, we predict growth of between 3.8% p.a. and 6.9% p.a. in Latvia. This translates into a total commercial market value of between $56 million $74 million by 2020.

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